Question

Wouldn’t it be better to close on a home before paying off an auto loan because of the hit closing the account takes to your credit? Scenario: We have a SUV we pay $575/month We are working on paying it off early (currently 2 years in on a 7 year term and 2 months ahead on payments) We are almost done paying off our CC and then will heavily be dumping money into the auto loan  My FICO resilience index is at 65 which is high, that’s partly because of the CC (almost gone) and our high monthly auto loan. So that could slightly effect our application don’t lenders also look at how long is left to pay off the loan and not just the monthly payment? I feel like we should ACTIVELY start looking to buy when we are about 6 months out from paying off our car. So fingers crossed we would be closing on our home and shortly after pay off the car and not need to worry about the downfall of our credit score  * I paid off my Prius last month and I had a strong 807 FICO score and dropped 19 points so I know my score will drop from the SUV. My boyfriend is a co-signer on the SUV and is floating in the low 700s so closing that account will effect him more than me and it’s not a chance I want to risk. *

Answer 1

I closed on my house with an auto loan of over $400 a month. Coincidentally, 1 month later that car was totalled and paid by insurance so the account was closed and my credit dropped a lot. I'm glad I closed before that happened. Since then it's jumped back up but it definitely goes down when an auto loan closes.  

Comments

@iodometry thank you! That’s what I figured

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@finicky2385 good luck with everything!  

Answer 2

Are you currently saving for a down payment and closing costs? Also any chance you can refinance that auto loan? That payment is a bit high

Comments

@alis819 the last bit on our credit card should be paid off in 4-6 weeks. Then we are going to save to our minimum goal we want for the house. Then jump back into paying off the SUV. I looked at refinancing but we have an extremely low interest rate and we aren’t trying to touch our credit for the next year since we are hoping to buy.  

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@finicky2385 If all you will have left is the auto loan on the SUV I would say to keep making the minimum payments and save as much as you can for the house. On top of down payment and closing costs you also want a few thousand dollars set aside for future repairs/house maintenance. Our hot water heater went out a month after we closed on our first house  Then a couple months later we had a sewage backup in our unfinished basement and had to get professionals to clear the pipes and special cleaners to clean up the sewage. It suuuuuucked.  

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@alis819 ya it’s been my dilemma of if we should finish off our SUV cause we are trying to follow the Dave Ramsey baby steps and it includes paying off ALL debt. But we need so much money for a home I also feel like that should be the main priority

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@finicky2385 It depends on how quickly you want to buy. If you have years to wait then pay off all debt and then start saving. I think DR has some good ideas, but our family personally couldn't follow his baby steps because it didn't align with our priorities (which is why we prefer TBM).  

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@alis819 ya that totally makes sense! We have been living at my in laws for 2 years now and I am at my breaking point. We need to buy by next year. So I can explore just saving for now and refinancing our car after we close.  

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@alis819 i agree ☝ We have never had credit card debt, and we were going to pay off my SUV, but after talking to my extremely financially savvy parents who told me that since my interest rate is so low on my car, just to start saving for the house. It has worked out great for us. We will have my suv paid off 2 years or more early and have 10k saved for house emergency fund and have been in our new build home for almost a year now  @finicky2385

Answer 3

You never know . Ask he lender about it . I owed about 1k on my car when we were selling and buying our 2nd home. The lender asked me to pay the car off. I said no and they were fine w it. At the time we needed that 1k!  

Answer 4

I have never heard of resilience index.  

Comments

@corene it’s a rating based off how you’ll be able to handle a financial downturn or like with COVID and everyone losing their jobs. So right now mine says I could be hurting if something major happened that could effect me paying on my car and credit card. With everything from COVID I’m sure lenders are gonna be making sure people have financial backing after how many people had to defer mortgages